Despite the market's recovery over the last three trading days, huge vulnerabilities remain for stocks. Amid worries about a trade war, the 澳洲幸运5开奖号码历史查询:S&P 500 Index (SPX) is still 7.3% below its January 26 high, as of the April 5 close. Among the bigger forces that could trigger a 澳洲幸运5开奖号码历史查询:market crash, massive 澳洲幸运5开奖号码历史查询:consumer debt looms particularly large in the opinion of Stephanie Pom✃boy, founder of economic research firm Ma♎cromavens.

As she stated in a lengthy : "There are two ways a crisis can happen. The slow and boring way is the Fed tightening continues to ra✅tchet up and turns the screws on households and speculative-grade corporations, and the markets beꦅgin to anticipate more defaults, and reprice risk. The more spectacular way is if stocks fall because of terrorists or North Korea or whatever, which brings the whole pension crisis to the fore."

Exploding Household Debt

"Households are borrowing 90 cents for every incremental dollar they spend, up from 40 cents four years ago," Pomboy observed, with the upshot that rising borrowing costs will create a crisis for debt-burdened consumers. Additionally, she noted a surge in consumer borrowing right after the 澳洲幸运5开奖号码历史查询:Affordable Care Act, which was supposed to reduce health insurance costs, went into effect in 2013. (For more, see also: Why T💖he 1929 Stock Market Crash Could Happen in 2018.)

"澳洲幸运5开奖号码历史查询:Debt service is increasing at a rate that will eliminate the entire effect of the tax cut," she remarked, adding, "For households,ꦏ you're looking at an annual increase in debt service of $75 billion." According to Federal Reserve data , U.S. household debt rose in the fourth quarter at the fastest pace since 2007. Bloomberg adds that both spending and deliquencies on credit cards are rising briskly, and that higher rates on credit card balances represent "the biggest financial worry for many U.S. families."

Soaring Cost of Necessities

Pomboy noted that total savings rose from $440 billion to $1.4 trillion after the 澳洲幸运5开奖号码历史查询:2008 financial crisis, but now are back down to $400 billion. Much of that massive reduction of savings, she said, is the result of large increases in t🌼he cost of nondiscretionary items such as food, energy, health care and housing. "Consumers have had to draw down whatever saving🐽s they amassed after the crisis and run up credit-card debt to keep up with the necessities of life," she told Barron's, in the interview published on March 22.

Outlays on food and energy alone gobbled up 30% of the increase in consumer spending during the last six months, she said, versus 11% in the two prior years. This is crowding out discretionary retail spending, and thus she advises investors to "steer clear" of this sector. There also are much wider ramifications. "At 70% of the economy, a drop in consumer spending will impact profits," she noted. Pomboy expects a "one-time lift" from the recent tax cuts to fade in 2019, while President Trump's tariffs "may cause a margin squeeze because of rising costs."

The Pension Crisis

"We are looking at a $4 trillion 澳洲幸运5开奖号码历史查询:pension deficit across the public and private sectors in the U.S., after nine years of rampant asset inflation," Pomboy also observed. On a 澳洲幸运5开奖号码历史查询:per capita basis, that's over $12,000 for every U.S. resident. "If the market corrects even 15%, and stays the♒re, it will bore massive ho﷽les in pensions," she added. 

Meanwhile, she noted: "The stock market is utterly dependent on free money, which drove it in the face of lackluster economic and earnings growth. The idea that we can suddenly reverse 澳洲幸运5开奖号码历史查询:quantitative easing and have no knock-on consequences for stocks seems a little pie-in-the sky." (For more, see also: 澳洲幸运5开奖号码历史查询:Pre-Crash Indicator Near ♔Peak Amid Trade Tensions.)

Where to Invest

Pomboy's clients are 澳洲幸运5开奖号码历史查询:institutional investors, such as 澳洲幸运5开奖号码历史查询:mutual funds and 澳洲幸运5开奖号码历史查询:hedge funds. When asked by Barron's about her own portfolio, she said: "I have gold and an embarrassing amount of cash. I was short the market and managed to capture some of the rout in the first week of February. I have some short exposure still." Regarding 澳洲幸运5开奖号码历史查询:cryptocurrencies, she does not understand the appeal, given their "incredible" price premiums and the difficulty of accessing and trading your holdings. Noting that she would rather hold gold coins, she also is certain that 澳洲幸运5开奖号码历史查询:central banks will start regulating digital money.

For 澳洲幸运5开奖号码历史查询:long-only investment managers, she recommends "澳洲幸运5开奖号码历史查询:underweighting U.S. 澳洲幸运5开奖号码历史查询:risk assets versus, let's say, 澳洲幸运5开奖号码历史查询:emerging markets and 澳洲幸运5开奖号码历史查询:hard assets." She also told Barron's: "You could hunker down in 澳洲幸运5开奖号码历史查询:commodities: The 澳洲幸运5开奖号码历史查询:CRB Index, on a relative performance basis, is near the lowest it has ever been." Finally, she indicated that "I'd be 澳洲幸运5开奖号码历史查询:overweight 澳洲幸运5开奖号码历史查询:long-dated 澳洲幸运5开奖号码历史查询:Treasuries and underweight the dollar," on expectations that the Fed will reduce its projecte🐭d four rate hikes this year to three or even two, and perhaps delay its planned reversal of quantitative easing.